Cypress Bioscience: Investing in Pain

Cypress Bioscience, Inc (CYPB) is a small company with a 287 million dollar market cap that will soon begin to receive royalties for its first FDA approved product. Savella (milnacipran) was approved on January 14, 2009 by the FDA for the management of FMS (Fibromyalgia Syndrome) and became available at pharmacies on April 28. This drug will be marketed by Forest Laboratories (FRX), a company that already has a large sales force marketing Namenda for Alzheimer’s and Lexapro for depression and generalized anxiety.

Fibromyalgia

Patients with fibromyalgia syndrome experience pain, fatigue, poor sleep and other symptoms. Most experience mood disorders as well. Diagnosis remains difficult due to the absence of laboratory and imaging abnormalities. Therefore, identification of the syndrome is by history and physical exam. Up to 2% of the population, with a 9:1 ratio of female to male, meets official criteria for FMS, with most people presenting in young adulthood. Thus, there are up to 6 million people in North America with this disorder.

Because of the difficulty in proper diagnosis and the interplay between psychological and physical symptoms, FMS is often difficult to treat. Though many small studies in the past showed the benefit of some older drugs like the tricyclic antidepressant and anti-epileptic agents, larger studies were not performed before this decade. Over the past two years, Lyrica (Pfizer, PFE) and Cymbalta (Lilly, LLY) received FDA approval for FMS, making Savella the third drug to receive this indication.

Many patients with FMS receive some benefit from drugs that work through central pain pathways. The ‘gate control’ theory of pain asserts that pain may be modulated in the spinal cord, before being appreciated in the brain. Older tricyclic antidepressants, such as amitriptyline, imipramine and nortriptyline, work through multiple pathways including serotonin and norepinephrine reuptake inhibition and have been used off-label for years for FMS and other pain disorders.

Unfortunately, side effects are common with these drugs, especially when used at higher dose. Cymbalta (duloxetine) was the first true dual serotonin and norepinephrine reuptake inhibitor marketed and was first approved for depression, then for anxiety, diabetic peripheral neuropathic pain and most recently for FMS.

Norepinephrine, transmitted to the gray matter of the spinal cord from neurons in the brainstem, lingers longer at the synapse when reuptake is inhibited by medications such as Cymbalta or Savella. The role of serotonin in pain is less defined.

Lyrica, a medicine first approved for epilepsy, and also approved for post-herpetic neuropathy and diabetic neuropathy, was the first medication approved for FMS in 2007. Among other actions, Lyrica works through a calcium channel that can modulate pain.

Savella

Where does Savella fit in? Savella inhibits norepinephrine and serotonin reuptake in a 3:1 ratio, where Cymbalta has this action in a 1:9 ratio. Thus, Savella is more balanced in this regard. Theoretically, Savella should be more potent for pain modulation than Cymbalta.

Reviewing the studies, side effects appear to be fairly equal, though I have not yet had the opportunity to get feedback from patients who have been prescribed Savella over the last two weeks. Cymbalta has become a blockbuster with over 2 billion in sales last year.

There is huge potential for Savella to get a very large slice of this market. Because of the favorable norepinephrine and serotonin reuptake ratio, Savella may be a better agent for FMS, though no comparison study has yet been done.

Additionally, it should be effective for neuropathic pain and depression. It has been used as an antidepressant in Europe and Japan.

Savella will have several advantages and disadvantage, compared to Cymbalta. Its higher ratio of norepinephrine and possibility of higher efficacy will be the main advantage. Its disadvantages include being a twice a day drug (vs. Cymbalta at once a day).

Compared to the generic tricyclics, Savella will be much more expensive but have a better side effect profile. Lyrica has a different mechanism of action and will be less affected by the introduction of Savella than Cymbalta. Further competition with other new agents will be avoided as Pfizer recently halted development of esreboxetine, an enantiomer of the anti-depressant reboxetine (sold in Europe) that has an even higher ratio of norepinephrine to serotonin reuptake inhibition.

I expect both Lilly and Pfizer to ramp up their marketing for their products for FMS.

Cypress Bioscience, Inc.

Cypress initially licensed milnacipran from Pierre Fabre Medicament of France for FMS and related chronic pain syndromes in North America in 2001 for payment, landmark payments and royalties. The arrangement was modified in 2003 to allow development and sales of milnacipran for any indication in North America in exchange for shares of stock and warrants. In 2004, they entered into collaboration with Forest Laboratories to further develop milnacipran and to market it. This was in exchange for upfront and milestone payments. Forest assumed future development costs for milnacipran and Cypress will receive royalties. Outside North America, Pierre Fabre controls the drug.

Cypress has a very strong balance sheet with 142 million in cash and negligible debt. Many details of the Forest and Cypress agreements have not been made public and it is unclear how much of each dollar in sales will go to Cypress. Besides Savella, Cypress has a personalized medicine division with a product, Avise PG, to help determine response to methotrexate in rheumatoid arthritis patients.

The Bull Case

Pulling the trigger to buy CYPB was difficult for several reasons. First, the absence of details regarding royalty payments to Pierre Fabre and receipts from Forest Laboratories is unsettling. However, analyst reports have estimated a 15% royalty on sales. Second, I feel Cypress (and now Forest) has done a poor job developing a potentially very useful drug.

Why have they not initiated neuropathy and depression studies? When I first followed Cypress in 2005, I decided not to buy because I disagreed with their plan to go for a FMS indication from the FDA before going for the easier depression and neuropathic pain indications. Clinical studies with depression and neuropathy would likely have yielded cleaner studies than FMS and might have led to approval of Savella one or two years earlier. For years, FMS has been treated with off-label drugs and approval for another indication would still have led to its use in this indication. Also, I’m not a big fan of the brand name --- sounds too much like saliva.

So why buy now? Sales for Savella could easily reach 500 million. If the 15% figure is correct, royalties could reach 75 million/year by 2012. Additionally, if sales ramp up quickly, Cypress will be a takeover target, most likely by their partner, Forest. Though most of Savella’s use will be for FMS, some will used be off-label for other types of pain and depression.

Furthermore, from a technical standpoint, CYPB has consistently bounced off of its 200 day moving average this year and appears to be forming a reverse head and shoulder pattern on long-term (weekly) charts. Downside risk seems limited to $5.00 as this value has held up twice in the past 4 years and share price is supported by almost $4 per share of cash and a low burn rate.

Disclosure: The author is long Cypress Bioscience (CYPB) and has served on a speaker’s bureau for Pfizer (PFE).

Comments

[raytayzmd:]

If your dog was a neurologist, what would it do all day? ...obviously -- perform PET scans!

May 12 09:14 AM